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[2012] ZAGPPHC 199
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Risk and Another v Ombud for Financial Services and Others (38791/2011) [2012] ZAGPPHC 199 (7 September 2012)
REPORTABLE
IN
THE HIGH COURT OF SOUTH AFRICA
(NORTH
GAUTENG, PRETORIA)
Case
no: 38791/2011
DATE:07/09/2012
In
the matter between:
RISK,
DEEB
RAYMOND
..............................................................................
FIRST
APPLICANT
D
RISK INSURANCE
CONSULTANTS.
.....................................................
SECOND
APPLICANT
And
THE
OMBUD FOR FINANCIAL
SERVICES
.............................................
FIRST
RESPONDENT
PROVIDERS
STELLA
MATHAMELA
..............................................................................
SECOND
RESPONDENT
MINISTER
OF
FINANCE
...........................................................................
THIRD
RESPONDENT
ELISE
BARNES
..........................................................................................
FOURTH
RESPONDENT
JANET
ANNE
BUJOK
.................................................................................
FIFTH
RESPONDENT
LIONEL
WALTER
OLDACRE
....................................................................
SIXTH
RESPONDENT
CATHERINE
MARIE
OLDACRE
...............................................................
SEVENTH
RESPONDENT
GILLIAN
MARBEL
ORPEN
…....................................................................
EIGHTH
RESPONDENT
MARGERY
ISOBEL MARY
SALMOND
...................................................
NINTH
RESPONDENT
MARGARET
POSGATE
............................................................................
TENTH RESPONDENT
CAMILLO
MICHEL
FLORE
…....................................................................
ELEVENTH
RESPONDENT
JUDGMENT
BAQWA
J
[1]
This is an application by way of notice of motion regarding the
process and proceedings which the Financial Services Ombudsman
applies in her investigations and which devolve upon the institution
in terms of the Financial Advisory and Intermediary Services
Act 37
of 2002 (FAIS).
[2]
The practitioners in terms of FAIS are referred to as Financial
Services Providers (FSPs) and they have to be registered to
execute
their trade in terms of the FAIS Act. The applicants herein are FSPs
which are so registered.
[3]
Any complaint against FSPs in terms of the services rendered has to
be lodged, processed, investigated and a decision made in
connection
therewith with the Financial Services Ombudsman.
[4]
The first respondent is Ombud for Financial Services and the second
respondent is her deputy.
[5]
The third respondent is the Minister of Finance who is the minister
charged with the implementation and administration of FAIS.
[6]
Fourth to the eleventh respondents are the complainants who have
lodged complaints against the applicants with the first respondent
with regard to the services rendered to them by the applicants
The
issues to be decided
[7]
The main issue concerns the determination of whether section 27(3)(c)
of the FAIS Act confers the applicants with the right
to demand that
the first respondent decline to deal with complaints lodged against
them and refer those to this court.
[8]
The second issue is whether the section imposes a duty on the first
respondent to refer the complaints to this court.
[9]
Further, the applicants seek reviewing and setting aside as uttra
vires and/or unconstitutional the decision of the first respondent
dismissing their demand that she declines to deal with the complaints
that were lodged against them by the fourth to the eleventh
respondents and that the court orders that the complaints be dealt
with by a court.
[10]
Alternatively the applicants seek that the first respondent's
decision not to convene a hearing before determining the complaints
be set aside and that first respondent convene a hearing after
developing certain procedural safeguards.
[11]
In the alternative the applicants seek the declaration of Section
27(5)(a) to be unconstitutional if the Section vests the
first
respondent with unfettered discretion not to allow hearings, legal
representations and trial.
[12]
Finally, and in the event of these prayers being granted, the
applicants ask for the setting aside and a declaration of invalidity
of any determination made by the first respondent relating to
complaints lodged by the fourth to eleventh respondents relating
to
the investments in the Villa and Zambesi Property Syndication
Schemes.
The
law
[13]
Upon the enactment of the FAIS Act the legislature provided that
complaints lodged with the Ombud would be dealt with by the
Ombud. It
however vested the Ombud with the power to refer certain complaints
to the courts. This power is to be found in Section
27(3)(c) which
provides as follows:
"The
Ombud may on reasonable grounds determine that it is more appropriate
that the complaint be dealt with by a court or through
any other
available dispute resolution process and decline to entertain the
complaint".
[14]
The investigative powers of the first respondent are further defined
in section 27(5)(a) which provides as follows:
1
The Ombud-
(a)
May, in investigating or determining an officially received
complaint, follow and implement any procedure which the Ombud deems
appropriate, and may allow any party the right to legal
representation".
The
facts
[15]
The fourth to the eleventh respondents invested various sum of money
in the Villa and Zambesi Syndication Scheme which subsequently
faltered. They had made the investments on the basis of financial
advice given by the applicants. When the investments failed to
produce the desired outcome, the fourth to the eleventh respondents
lodged complaints against the applicants with the first respondent.
[16]
The first respondent called upon applicants to furnish her with
responses to the complaints. In their responses, the applicants
simultaneously requested the first respondent to exercise her powers
under section 27(3)(c) of the FAIS Act to refer the matters
to court.
[17]
In support of their request applicants submitted that there were
disputes between the version of the fourth to eleventh respondents
regarding essential events which could not be properly adjudicated on
documents and written submissions and thereby suggesting
a need for
oral evidence.
[18]
The applicants further submitted that the first respondent's
jurisdiction to apply "equity" as opposed to law in
resolving complaints would result in unjustifiable limitation of
their rights of access to the courts under section 34 of the
Constitution.
[19]
The first respondent responded on 21 April 2011 rejecting their
request. She expressed the view that applicants were attempting
to
anticipate the decision of her office. She further cautioned them
with reference to section 31 of FAIS Act. Section 31 deals
with
penalties which may be imposed for conduct considered to be contempt
of court. The first respondent's letter also seemed to
imply a
criminal attempt to influence her determination of the complaints.
[20]
It was upon the first respondent's refusal to entertain the request
by the applicants that the present application was launched.
[21]
The applicants did not seek to interdict the first respondent from
determining any of the complaints lodged against them subsequent
to
the launch of the application, the first respondent refused to hold
over the determination of the complaints pending the finalisation
of
this application and she proceeded to make two determinations of the
complaints laid against the applicants by the fourth respondent,
Ms
Barnes.
[22]
The latter determination prompted applicants to proceed by way of
urgent application to this court to interdict the determinations
from
being converted into civil judgments as provided for in section
28(5)(a) of FAIS Act.
[23]
The urgent application was settled by agreement between the parties
upon the giving of an undertaking by the first respondent
that until
the hearing of this application, she would not take any steps to send
any of the determinations she made in relation
to the complaints to
the Registrar of this court. The determination of the urgent
application was consequently postponed to the
hearing of this
application
[24]
In the light of events which led to the urgent application, the
applicants decided to amend their Notice of Motion. Instead
of filing
an objection to the proposed amendments, the first respondent filed a
further affidavit dealing with her response to
the amendment.
[25]
Primarily this application deals with the discretion which is
conferred upon the first respondent by section 27(3)(c). What
has to
be determined is whether that discretion was properly exercised and
whether there is any mandatory element in the provisions
contained in
section 27.
[26]
The applicants conceded that it is a trite feature of statutory
interpretation that the use of word "may" tends to
imply a
permissive conferral of power. They however submit that there are
cases in which the context in which the word is used
may require to
be interpreted to be obligatory as ''shall". In casu they submit
that section 27(3)(3) imposes a duty on the
Ombud to refer matters to
a court where reasonable grounds exists for such referral.
[27]
Applicants submit further that an interpretation which imposes such a
duty on the first respondent is consistent with the provisions
of
section 34 of the Constitution.
[28]
For clarity's sake, section 34 provided as follows;
"Acces
to court
Everyone
has the right to have any dispute that can be resolved by the
application of law decided in a fair public hearing before
a court or
when appropriate, another independent and impartial tribunal or
forum."
[29]
In support of their submissions applicants suggest that the Ombud
does not apply the principle of "audi alteram partem",
that
she does not allow legal representation and by implication no
cross-examination and that her whole process is accordingly
unfair
and not in accordance with the provisions of section 34.
[30]
On the other hand, the first, second and third respondent take a
contrary view to the effect that first respondent's decisions
are
within the four corners of the law.
[31]
First respondent submits that section 27(3){c) confers no right on
the applicants to demand that the first respondent decline
to deal
with complaints that have been lodged against them nor does it confer
a duty on the first respondent to refer such complaints
to court
[32]
First respondent submits that a court directive to the office of the
Ombud would be tantamount to an usurpation of her functions.
Further
first respondent refutes the suggestion that her refusal is
inconsistent with the applicant's rights under section 34 of
the
Constitution.
[33]
I have considered the submissions by applicants counsel but I'm not
persuaded that this application is well founded.
33.1.
It is quite clear from a reading of section 34 (supra) that the
section does not entitle the applicants to be sued in a court.
On the
other hand the section specifically makes provision for matters to be
dealt with by an independent tribunal or forum such
as the first
respondent ,See Lufuno Mphaphuli and Assoc (Pty) Ltd v Andrews
2009(4) SA 529(CC).
33.2.
Section 39 of FAIS ought to have been utilised by the applicants to
protect their interests. The section provides as follows:
'Right
of Appeal
39
Any person who feels aggrieved by any decision by the registrar or
the Ombud under this Act which affects that person, may appeal
to the
board of appeal established by section 26(1) of the Financial
Services Board Act, in respect of which appeal the said section
26
applies with the necessary changes."
[34]
Upon a reading of section 39 it becomes patently clear that
applicants have failed to exhaust internal remedies
34.1.
Section 7(2) of PAJA provides'
"(a)
Subject to paragraph (c) no court or tribunal shall review an
administrative action in terms of this Act unless any internal
remedy
provided for in any other law has first been exhausted.
(b)
Subject to paragraph (c), a court or tribunal must, if it is not
satisfied that any internal remedy referred to in paragraph(a)
has
been exhausted, direct that the person concerned must first exhaust
such remedy before instituting proceedings in court or
a tribunal for
judicial review in terms of this Act. (c) A court or tribunal may, in
exceptional circumstances and on application
by the person from the
obligation to exhaust any internal remedy if the court or tribunal
deems it in the interest of justice."
34
2. In the case of City of Cape Town v Reader 2009(1) SA 555 (SCA) the
SCA held in regard to section 7(2) of PAJA that the aggrieved
person's right of access to the courts or independent and impartial
tribunals is denied until he or she has exhausted the internal
remedy. It was emphasised in that case that section 7(2) is couched
in peremptory terms which oblige every reviewing court to decline
to
hear a review application brought under PAJA until the aggrieved
party has exhausted internal remedies.
[35]
In Nichol and Another v Registrar of Pension Funds and Others 2008(1)
SA 383 (SCA)
the
SCA held that a person seeking exemption under section 7(2 )(c) of
PAJA had to meet two requirements in their application to
court;
35.1
They must demonstrate that there are exceptional circumstances which
justify the exception; and
35.2
They must demonstrate that it is in the interest of justice that the
exception be given;
35
3 The SCA held that "exceptional circumstances" are
circumstances that are out of the ordinary and that render it
inappropriate for the court to require the section 7(2)(c) applicant
to pursue the available internal remedies.
[36]
The
FSB Board
In
the Nichol decision (supra) the SCA commented on the powers of the
FSB Board and on the quality of the hearing available to applicants
on appeal as follows:
"[20]
The FSB Appeal Board, established in terms of section 26(1) of the
FSB Act, is a specialised tribunal with a wide range
of expertise
available to it. It consists of three persons appointed by the
Minister of Finance on the basis of their wide experience'
and
'expert knowledge' of respectively, the law, financial institutions
and financial services, and accountants and auditors profession.
[22]The
appeal board conducts an appeal in the fullest sense-it is not
restricted at all by the functionary's decision and has the
power to
conduct a complete rehearing, reconsideration and fresh determination
of the entire matter that was before the functionary
with or without
new evidence or information".
[37]
The applicants in their amended Notice of Motion included a prayer
for exemption under section 7 (2)(c) of PAJA without pleading
any
special or exceptional circumstances to support the application for
exemption.
37.1.
They seek condonation for failure to exhaust internal remedies in
their replying affidavit. This in itself was a failure to
comply with
a primary duty to make out a case for the relief sought in their
founding affidavits.
In
Shakot Investments (Pty) Ltd v Town Council of the Borough of Stanger
1976(2) SA 701 (D) at 704 F-G
The
principle applicable was stated as follows:
"In
proceedings, by way of Notice of Motion the party seeking relief
ought in his founding affidavit to disclose such facts
as would, if
true, justify the relief sought and which would, at the same time,
sufficiently inform the other party of the case
he was required to
meet".
In
this application applicants have not complied with this principle.
37.2.
I have accordingly not found any exceptional circumstances to condone
applicants' failure to exhaust internal remedies. Neither
do I
consider it to be in the interests of justice to exempt them from
following the internal appeal process.
[38]
The inquisitorial process
The
effect of section 27(3)(c) (supra) is that first respondent retains
jurisdiction over a complaint unless she, on reasonable
grounds makes
a determination that it should be dealt with by a court or any
alternative dispute resolution process. It has been
submitted and I
accept that first respondent administers an institution which in
terms of FAIS demands efficiency and economy and
that this may indeed
justify the lack of a public hearing in circumstances which may be
resolved quickly and with minimal formality.
See:
The Queen (on the application of Heather Moor & Edgecomb) v
Financial Ombudsman Office and Lodge
(2008) EWCA Civ 642
(11 June
2008)
The
section confers neither a right on applicant to demand that the ombud
declines her jurisdiction to deal with complaints nor
does it confer
a duty for her to do so. The section clearly confers a discretion on
the first respondent. Any other interpretation
would be tantamount to
stripping her of her statutory powers in terms of FAIS Act. Absent a
decision by the first respondent to
refer the matter to a court, she
retains jurisdiction. It is not the task, therefore, of the reviewing
court to consider whether
or not the decision by the first respondent
is correct in law. That is a matter for the appeal board to decide.
[39]
Section 27 is written in a language that clearly demonstrates the
intention of the legislature.
39.1.
Upon submission, the Ombud 'must" determine whether there has
been compliance with the rules and if so, officially receive
the
complaint (section 27(1)). The provision is peremptory.
39.2.
Section 27(3)(a) provides that the Ombud "must" decline a
prescribed complaint. This subsection is equally peremptory.
39
3. Equally section 27(3)(b) states that the Ombud "must"
decline a complaint pending before a court.
39
4. On the contrary the Ombud "may" follow any procedure she
considers appropriate including allowing representation.
She is not
obliged to do so. (section 27(5)(a))
39
5. The Ombud "may" delegate some of her investigative and
adjudicative functions, (section 27(5)(d))
39.6.
Similarly she "may" consider it appropriate on reasonable
grounds to refer a complaint to a court or other dispute
resolution
forum, (section 27{3)(c))
The
applicants contend that the word "may" must in this context
be interpreted to mean "shall". This would be
clearly an
extraordinary interpretation which as demonstrated above cannot but
distort the intention of the legislature and lead
to an absurdity.
The
constitutional challenge
[40]
The applicants contend that section 27(3)(c) imposes a duty on the
first respondent to decline to deal with complaints that
have been
lodged against them. If this court should find that this section
imposes no such duty they contend this court should
construe section
29(5)(a) as imposing a duty on the first respondent to convene a
trial before determining complaints and order
her to develop
"procedural safeguards" proposed by them. If the outcome of
the application of section 27(5)(a) is not
convening of a trial, then
they want section 27(5)(a) to be declared constitutionally invalid.
Section
27(5)(a) provides as follows;
"(5)
The Ombud-
(a)
May in investigating or determining an officially received complaint,
follow and implement any procedure (including mediation)
which the
Ombud deems appropriate, and may allow any party the right of legal
representation."
[41]
The challenge faced by the applicants is that they cannot pedal two
canoes at once
In
Brummer v Minister for Social Development and Others 2009(6) SA 323
(CC) at para 32
The
Constitutional Court pronounced as follows.
"A
litigant should not be allowed to blow hot and cold. It is
impermissible for a litigant to ask a court to apply the provisions
of a statute and, if this yields adverse results, then to ask the
court to declare the statute unconstitutional. It is however,
permissible, to urge a court to adopt a particular construction of a
statute, and, if it should find that the statute is incapable
of the
construction contended that the provision is unconstitutional."
In
this case the applicants want this to apply section 27(5)(a) and only
in the event its application not favouring them to declare
it to be
unconstitutional. This can clearly not be allowed.
[42]
The applicants face a further challenge in the principle that in
constitutional matters, a court should not decide a constitutional
issue unless it is "necessary" to do so. This "principle
of avoidance" was laid down by the Constitutional
Court in
Zantsi v Council of State, Ciskei and Others 1995(4) SA 615(CC).
In
that matter, then Chaskalson P said the following:
"It
is only where it is necessary for the purpose of disposing of the
appeal, or where it is in the interest of justice to
do so, that the
constitutional issue should be dealt with first by this court. It
will only be necessary for this to be done where
the appeal cannot be
disposed of without the constitutional issue being decided; and it
will only be in the interest of justice
for a constitutional issue to
be decided first, where there are compelling reasons that this should
be done..............................
,. in view of the far reaching
implications attaching to constitutional decisions, it is a rule
which should ordinarily be adhered
to by this and all other South
African courts before whom constitutional issues are raised "
[43]
In this case I am of the view that the applicants have failed to
identify a constitutional issue that would require to be dealt
with
as a priority as enunciated by Chaskalson P (as he then was) in the
Zantsi decision (supra). The intention of the legislature
in framing
section 27(5)(a) of the FAIS Act as it presently stands is clear. It
was to permit the Ombud institution a measure of
flexibility when
dealing with complaints. This means that depending on the
circumstances and facts of each complaint, the Ombud
may adopt
procedures which are akin to that of a court hearing.
[44]
The constitutional challenge is therefore either poorly formulated or
simply does not arise.
[45]
In the result: Having considered the conspectus of facts, submissions
and the law, I have come to the conclusion that the following
is an
appropriate order:
45.1.
The application is dismissed with costs.
45.2.
Costs to include the costs of two counsel in respect of first, second
and third respondents.
S.A.M
BAQWA
(JUDGE
OF THE HIGH COURT)
Legal
representatives for applicant: Bieldemans Inc
Counsel
for applicant:Adv P Louw S.C
.....................................
Adv
K Hofmeyer
Legal
representatives for first respondent: Ramushu Mashile Twala
Inc
Counsel for first respondent: Adv V Ngalwana
…
.............................................
Adv
N Mbelle
Legal
representatives for second respondent:Ramushu Mashile Twala
Inc
Counsel for first respondent:Adv V Ngalwana
…
.............................................
Adv
N Mbelle
Legal
representatives for the third respondent: The State Attorney
Counsel
for the third respondent: Adv J Gauntlett S.C
…
................................................:....
Adv
K Pillay